* subscribe at http://techPolice.com U.S. Charges Internet Operation Was a Huge Scam By KURT EICHENWALD The New York Times A down-and-out businessman established one of history's fastest frauds, conning tens of thousands of small investors. By last September, life was getting rough for Donald A. English. An unemployed single father, Mr. English was almost out of cash. His family was threatened with eviction. Collection agencies were at the door. His credit cards were mostly tapped out. With the walls closing in, Mr. English, 53, decided to grab for a distinctly modern solution to his crumbling finances: He started his own dot-com. But this was no ordinary Internet company. Instead, government investigators said, it was the centerpiece of a huge scam. With it, they said, this down-and-outer from Midwest City, Okla., established one of history's fastest frauds, conning tens of thousands of small investors out of as much as $50 million in a matter of weeks, until the scheme collapsed early this year in scandal. The rapid-fire rise and fall of Mr. English and his enterprise, EE-Biz Ventures, is more than just a tale of potential fraud on Internet time. It has also exposed, investigators said, a strange corner of the cyberspace investing world, one permeated with financial fantasies spun by assorted hucksters and believed by legions of the gullible. It is a place of fictitious currencies and make-believe investments, where 100 percent returns over a few days are not only promised but expected. Investigators have stumbled across imaginary banks hawking nonexistent "digital" certificates of deposit, illusory trillion-dollar government obligations and bogus business deals to "lease" millions of dollars in cash. The fantasy world is so detailed that, in one instance, the government was struggling to cash a $9 million check posted in the English case, only to find that the bank on which the check was drawn did not exist. And then there are the bizarre individuals connected to the case, like the purported financier who claims to be in radio contact with a 9-foot-6 extraterrestrial circling the earth in a spaceship. "When you look at what went on here, you have to willingly suspend any sense of reality," said J. Chris Condren, an Oklahoma lawyer appointed by a federal court as a receiver for EE-Biz. "It's like Rumpelstiltskin. You have to believe in fairy tales to buy into this." Regardless of the oddities, government officials said, the harm done by Mr. English is all too real. "While a lot of this may seem silly and absurd, we have real victims and real losses here," said Spencer Barasch, associate administrator for the Securities and Exchange Commission's Fort Worth office, which is handling the case. "And a lot of these victims are elderly and vulnerable." These days, Mr. English sits in a federal prison here, charged with contempt for ignoring a court order that he disclose the location of almost $9 million that is missing. As for the victims, many still have not accepted that they were cheated and send e-mails regularly to the S.E.C. and other officials, demanding the release of the man who promised to lead them to financial prosperity. William B. Federman, a lawyer for Mr. English, declined to comment on the specifics of the accusations against his client. >From the beginning, there was nothing particularly clever about EE-Biz, according to >an S.E.C. complaint filed here. It was, the agency said, a simple Ponzi scheme, in >which early investors are paid bogus profits with money from new investors. >Eventually, as new cash stops coming in, the music stops and the scheme collapses, >leaving the latest investors with huge losses even as early investors like Mr. >English can walk away with fortunes. In the case of EE-Biz, court records show, investors who signed up opened an account with a legitimate company that functioned like a bank, using an Internet currency known as e-gold. Then, they transferred dollars in e-gold a transaction known as a spend, involving as little as $20 or as much as several thousand to an e-gold account, controlled by someone else. The early investors received double their money back, with no explanation of how it was done. As word spread of the payouts, investors flocked to the site to participate. Mr. English himself had been a victim of a number of similar schemes and decided to open up his own, according to transcripts of chat room conversations. Those transcripts indicate that Mr. English himself may not have completely understood the bogus nature of the plan. "The way it is set up is really kool, and we will make plenty and pay everyone, too," Mr. English wrote in the chat room. But then, for several minutes he struggled to understand how the plan could take in $300, only to pay out $600 days later. "Where does the additional $300 come from so everyone gets paid?" Mr. English asked repeatedly. To solve that problem, Mr. English ultimately suggested that he would invest money in other Ponzi schemes. According to records of EE-Biz investors, the company was formed last Oct. 21 by Mr. English and five others. Mr. English took the title of chief financial officer. The others who were mostly unemployed, with little experience in the business world were each named president. Yet Mr. English "was the only one who knew how the money was being made," George Anderton, one founder, wrote in a memo to the S.E.C. "He refused to tell us but assured us that he had done massive work with his legal team to ensure that everything was legal, moral and had the blessings of all of the applicable regulatory agencies." Actually, Mr. English had no such approvals and later, when he consulted a lawyer, he was told that his idea could not be carried out legally in Oklahoma, according to a confidential EE-Biz document. The false assurances of compliance were part of an attempt to make EE-Biz stand out from other Internet Ponzi schemes, investigators said. But Mr. English went further, recruiting promoters for the site who were compensated for chatting up EE-Biz in cyberspace. EE-Biz was also dressed up in the garb of a quasi-charitable organization to attract religious investors. Mr. English held the company out as a humanitarian group helping families with their finances. The promotion lured investors from around the world. According to information later seized by inspectors for the Postal Service, EE-Biz victimized people from all 50 states and the District of Columbia, as well as from Canada, Australia, New Zealand and other countries. "Their lives are lived in the virtual world rather than the real world," Mr. Condren, the EE-Biz receiver, said of the investors, many of whom he has contacted. "They live all day long on the Internet. They stay up all night on the Internet." To manage the Web site, Mr. English hired an Internet specialist named Kevin Thiesse. Before taking the job, Mr. Thiesse and a colleague spoke with Mr. English "and asked him whether EE-Biz Ventures was a `Ponzi' scheme," Mr. Thiesse wrote in a subsequent e-mail to investors. Mr. English "assured us that EE-Biz Ventures was not a Ponzi scheme and that he was legitimately investing the funds offshore." Money for EE-Biz poured in so fast that Mr. English's money problems were quickly solved. Banking records show that he opened multiple accounts, with tens of thousands of dollars running through them. With the flow of cash came a taste for spending. Weeks after being unable to pay his rent, Mr. English paid $23,000 for a silver Ford Mustang. Days later, he returned to the dealership with $25,000 for a pickup truck. Receipts show that he also spent tens of thousands of dollars for new computer equipment, videocassette recorders and other big-ticket items. The good life, it seemed, had come to the English home. Soon, problems cropped up. Demand for EE-Biz was so strong that the computer systems crashed, stopping not only the payouts but also the influx of new money. Then in December, investors many needed cash for the holidays slowed their contributions. Payouts stopped completely, and complaints began. "I need at the least a full refund of the $3,000 spend if you do not intend to pay anyone back," one investor wrote. "Remember, I have cancer and am unable to work for the next six months." A couple in their 70's wrote Mr. English, explaining how they had been heavily in debt when they heard of EE-Biz and had taken out a loan to participate. "Had EE-Biz rolled just one more time, we would have been well on our way to recovery," the couple wrote. "We sure would be most grateful to you and EE-Biz for any help we may receive at this low tide in our lives." As the pleas for help came in, Mr. English thrashed about for new money. Before Christmas, he sent an e- mail to investors, asking for financial support. Then, he sent another e- mail, saying that if everyone did not put in more money, their initial investments would be lost. That shocked the specialists running the EE-Biz Web site. "The letter was nothing less than a letter of extortion," Mr. Thiesse wrote in a subsequent communication to investors. "It was requiring investors to make further spends in hope of obtaining their money." Distressed, Mr. Thiesse and a colleague made some calls and became convinced that EE-Biz was a scam. They shut down the site. But with a list of as many as 56,000 gullible investors, EE-Biz attracted other get-rich-quick schemers. According to court depositions, Mr. English and several other EE-Biz founders met at a Florida hotel with a man promising to engineer a giant currency trade. For the deal, the group was told that they needed to raise more than $1 million, which would be used to "lease" $100 million from a shadowy Hong Kong entrepreneur. The proposal was ridiculous on its face why would anyone put his own money at risk so that others could take huge profits? But the EE- Biz investors sensed nothing wrong, and forwarded several hundred thousand dollars. The money has since disappeared. Investors contacted the government, and the S.E.C. quickly filed a complaint against Mr. English and EE-Biz, demanding that he return the money. Mr. English was also put on notice that he was a target of a criminal investigation. Mr. English broached the idea of a plea deal, under which he would return $9 million that the government concluded had disappeared. The money, he said, would be provided by a benefactor named Garry Stroud, a resident of Canada who claimed to be the principal in a Swiss bank, Euro Credit and Exchange. The government agreed, after receiving sworn affidavits from both men that the money would not come out of the proceeds from EE-Biz. In March, a $9 million check arrived from Mr. Stroud. But officials soon learned it was all a ruse: Euro Credit was not a real bank. In a letter to the S.E.C., Mr. Stroud accused the government of failing to cash the check properly. The check, he wrote, should have been sent by courier to his bank's offices in Geneva, which would then cash it. But investigators checked out the story, and found that the offices were nothing more than rental space and that Mr. Stroud had given instructions that checks sent to the address were to be forwarded to him in Canada. "He wrote a check that would only be cashed when it was sent back to him," said Harold R. Loftin Jr., an S.E.C. lawyer in the EE-Biz case. "The whole thing was ridiculous." The more they examined Mr. Stroud, the more uncomfortable investigators became. The primary financial asset he listed was a half interest in a purported Peruvian debt, which he said was now an obligation of the American government for more than $1 trillion. The half interest was granted to him by the woman who said she was in contact with a space alien. Why would Mr. Stroud, who did not return phone calls, go through the charade? Largely, officials say, to get a crack at the EE-Biz investors. According to a recently filed S.E.C. suit, Mr. Stroud has a history of defrauding investors. Already, he has informed EE-Biz investors that he deposited money they lost in accounts at Euro Credit. And while the investors can see the money in their name at the Euro Credit Web site, they cannot take any out. To do that, they have to send more money to Mr. Stroud, who says he will then provide a bank card that will allow withdrawals from any A.T.M. On top of that, he is offering the investors an opportunity to participate in another program to double their money. And how have they responded? Many investors have already sent Mr. Stroud their money throwing another $300,000 away, by the S.E.C.'s estimate. Now they are anxiously awaiting the delivery of working debit cards that investigators believe will never come. ============================================================ Half.com is the Smartest Place to Buy & Sell your CDs, DVDs Books, & Games! Get killer deals on over 10 million items priced up to 50-90% off. Plus get $5 off your 1st purchase. http://click.topica.com/caaacuMb1dhr0b2EDp2f/half ============================================================ --via http://techPolice.com archive: http://theMezz.com/cybercrime/archive subscribe: [EMAIL PROTECTED] --via http://theMezz.com ==^================================================================ EASY UNSUBSCRIBE click here: http://topica.com/u/?b1dhr0.b2EDp2 Or send an email To: [EMAIL PROTECTED] This email was sent to: archive@jab.org T O P I C A -- Register now to manage your mail! http://www.topica.com/partner/tag02/register ==^================================================================
